Funds Hub

Money managers under the microscope

A pretty pair

January 29, 2009


The shrinkage of the UK-listed banking sector is providing an interesting trade for Legal & General Investment Management’s $46 million Global Macro fund.

After some dramatic share price falls, banks now account for only around 10 percent of the FTSE 100. According to LGIM’s head of asset allocation David North, this means any potential damage of further bank problems to the index is likely to be a lot less from here onwards.

In contrast, banks account for around 32 percent of Spain’s Ibex index. North points out that this includes Santander, owner of mortage lender Abbey and parts of Bradford & Bingley, both offering plenty of exposure to the UK property market.

Hey presto, a pairs trade.

“UK equities we believe are fundamentally cheap. It’s a dollar earnings base and a sterling cost base. Spain’s exposure to the property market (is huge),” says North.

“Why would you not be long the UK and short Spain?”

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